Consultation on reporting company payments to participators

The consultation explains that small businesses account for 60% of the overall tax gap, with small business Corporation Tax (CT) forming a significant part of this.

• While under-reported income and over-claimed expenses contribute to the tax gap, the consultation focuses on the risk of error and evasion in transactions between a company and its owners.
  • The government believes this risk is greatest in Close companies, where the legal distinction between the company and its participators is sometimes misunderstood, and the level of control can enable tax avoidance.
• HMRC's investigations into the small company CT gap have concluded that they are not receiving the full picture on how close companies interact with their participators.

Under the proposals:

• Close companies will be required to provide HMRC with detailed information on transactions between the company and its participators, including:
  • Payments, via cash, bank transfer or otherwise.
  • Sales of assets to the company.
  • Purchases of assets from the company.
  • Dividends or other distributions.
  • Any other transfer of value from the company to the participator.
    • Payments reported via Real-Time Information (RTI) would not need to be reported.
• The information to be provided would include:
  
  • The amount of the transaction.
  • The date of the transaction.
  • Identifying details of the participator, for example: name, address and National Insurance number.
    • This information would allow HMRC to cross-reference data with the participator's Income Tax Self Assessment return.
    • The government is considering how this would work where there is no employment relationship between the company and participator, or where other persons or entities are interposed between a company and its ultimate beneficial owners, or where the indirect loan provisions or the anti-avoidance provision might apply.
• The government is exploring changes to the personal tax reporting framework that will allow it a more holistic view of closely held corporate structures.
  • This would build on the additional Dividend reporting requirements for certain directors that have applied since 6 April 2025.
• The information could be required annually or more frequently, depending on the administrative burden and how easily the data are available.
  • Possible methods of reporting include updating the CT600A, the Company Tax Return or a more bespoke digital solution.
  • In line with their Transformation Roadmap, which confirmed that Making Tax Digital (MTD) will not be introduced for CT, HMRC say that they are not looking to directly replace MTD for CT.
• Details of any repayments made by a participator would be captured, as would instances where close companies release or write off loans to their participators.
• The normal CT penalty regime would apply.
  • Specific penalties are also being considered, for example, where transactions are deliberately omitted.

The government intends to use the consultation to:

• Gauge how well taxpayers understand the current rules and the support available to them.
• Better understand what information is currently recorded by close companies in relation to participators.
• Obtain views on collecting data and reporting it to HMRC, and whether any areas would be a particular challenge.

 The consultation closes on 10 June 2026. Responses can be made using the form linked to in the consultation.

Useful guides on this topic

Loans to participators (Close Company Loans Toolkit)
What is the Corporation Tax treatment when a close company makes a loan to a participator (director-shareholder)? How do the 'bed and breakfasting' rules work? What are the concerns with indirect loans, upstream loans and MBOs?

Close companies, definitions & control
What is a Close company? What are the tax consequences? What is a Participator? What is meant by Control of the company? What are the tests for Control?

External link

Consultation: Reporting company payments to participators - modernising the reporting framework

Question 1: Is the close company definition well-understood in the small company population? Are companies always aware whether they are close?

Question 2: Are the loans to participators rules well-understood in the small company population?

Question 3: Do small companies have a good understanding of relevant corporate law? For example, about when it is permissible to issue a dividend.

Question 4: Do small companies typically receive support from tax advisers or accountants with understanding their tax obligations and completing their tax return? If so, at what stage would the adviser be engaged, and what level of support is offered?

Question 5: Other than by engaging tax advisers, how else do companies find appropriate guidance or advice on these subjects?

Question 6: What challenges do tax advisers currently encounter in this space when handling company records and preparing returns? Are there examples available of 'good' or 'bad' client workflows?

Question 7: What data do close companies currently keep about their transactions with their participators? How do companies currently keep track of Directors' Loan Accounts?

Question 8: How often do companies collect or collate this data? For example: daily, weekly, monthly or on an as-and-when basis. If infrequently, what safeguards are in place to ensure that all transactions are captured in the records?

Question 9: How many separate transactions might occur annually in an average close company in relation to a single participator?

Question 10: What is the general size and frequency of these transactions?

Question 11: How many participators might an average close company be undertaking transactions with?

Question 12: Are there any categories or types of participators, or types of transactions themselves, where it may not be practical or beneficial to provide details to HMRC?

Question 13: How, and to what extent, are company and personal records currently aligned?

Question 14: How are these records currently kept?

Question 15: Do software products currently used by companies to prepare their accounts or tax return contain any functionality to help keep track of transactions such as shareholder loans, or possible charges under the loans to participators regime?

Question 16: What would be the preferred way to transfer the required information to HMRC?

Question 17: Do you expect this to cause any additional administrative burdens for your business? If so, how could they be minimised or removed?

Question 18: In what circumstances might it be difficult for companies to provide identifying details of participators?

Question 19: Do you have a view on the relative administrative impact of this suggestion?

Question 20: Do you anticipate any issues with the application of the normal CT penalty regime to this requirement? Can you see any scenarios where a more bespoke penalty regime might be more appropriate?

Question 21: Are you responding to this survey as:

• A business.
• A representative body.
• An agent.
• An individual.
• Other (Please provide details)?